EXHIBIT 10.3
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement"), dated as of October 27,
1998, is made by and among Pinnacle Automation, Inc., a Delaware corporation
("Pinnacle"), ▇▇▇▇▇ Systems, Inc., a Delaware corporation and wholly owned
subsidiary of Pinnacle ("▇▇▇▇▇"), and ▇▇▇▇▇▇ Software International, Inc., a
Delaware corporation and wholly owned subsidiary of ▇▇▇▇▇ ("▇▇▇▇▇▇") and their
respective successors-in-interest.
RECITALS
WHEREAS, prior to the date hereof, ▇▇▇▇▇ operated directly and through its
five principal and wholly owned subsidiaries, The ▇▇▇▇▇▇▇▇ Company, an Ohio
corporation ("▇▇▇▇▇▇▇▇"), ▇▇▇▇▇ Bros., Inc., a Wisconsin corporation ("▇▇▇▇▇"),
White Systems, Inc., a New Jersey corporation ("White"), Real Time Solutions,
Inc., a Delaware corporation ("RTS"), and ▇▇▇▇▇▇, which in turn owns all of the
issued and outstanding capital stock of ▇▇▇▇▇▇▇ Software Development Corp., a
Connecticut corporation ("▇▇▇▇▇▇▇"), Software Architects, Inc., a Wisconsin
corporation, and ▇▇▇▇▇▇ & Associates, Inc., a Minnesota corporation;
WHEREAS, Alvey, Buschman, ▇▇▇▇▇, White and RTS provide automated materials
handling systems for manufacturing plants, distribution centers and warehouses
and related services (the "Systems Business");
WHEREAS, ▇▇▇▇▇▇ and its subsidiaries develop, market, implement and support
software solutions for warehouse and transportation management (the "▇▇▇▇▇▇
Business");
WHEREAS, the Board of Directors of Pinnacle has determined to separate the
Systems and ▇▇▇▇▇▇ Businesses in order (i) to concentrate on its core business
represented by the Systems Business, (ii) to enable ▇▇▇▇▇▇ to raise equity
capital by the sale of shares of a newly created class of ▇▇▇▇▇▇ common stock
(the "▇▇▇▇▇▇ Class A Common Stock") and warrants to purchase shares of the
common stock, par value $0.01 per share, of ▇▇▇▇▇▇ (the "▇▇▇▇▇▇ Common Stock")
and (iii) to enable ▇▇▇▇▇▇ to attract and motivate its employees through the
grant of meaningful proprietary equity ownership interests in ▇▇▇▇▇▇ to such
employees;
WHEREAS, the Board of Directors of Pinnacle has determined to effect such
separation by distributing (the "Spin-Off") on a PRO RATA basis to Pinnacle's
common stockholders the currently outstanding ▇▇▇▇▇▇ Common Stock;
WHEREAS, in order to effect the Spin-Off of ▇▇▇▇▇▇, the parties hereto
desire that ▇▇▇▇▇ distribute all of the shares of ▇▇▇▇▇▇ Common Stock held by
it, which represents all the issued and outstanding ▇▇▇▇▇▇ Common Stock, to
Pinnacle (the "Initial Spin-Off Distribution"), and that Pinnacle subsequently
distribute such shares of ▇▇▇▇▇▇ Common Stock PRO RATA to its common
stockholders (the "Subsequent Spin-Off Distribution," and collectively with the
Initial Spin-Off Distribution, the "Spin-Off Distributions"), thereby effecting
the Spin-Off;
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WHEREAS, prior to the Spin-Off, the parties hereto desire that ▇▇▇▇▇▇
issue to ▇▇▇▇▇ 215,523 shares of Class B Common Stock of ▇▇▇▇▇▇, par
value $0.01 per share (the "▇▇▇▇▇▇ Class B Common Stock") and 128,022
shares of Class C Non-Voting Common Stock of ▇▇▇▇▇▇, par value $0.01 per
share (the "▇▇▇▇▇▇ Class C Common Stock"), which will represent all of
the issued and then outstanding ▇▇▇▇▇▇ Class B Common Stock and ▇▇▇▇▇▇
Class C Common Stock, and that ▇▇▇▇▇ subsequently distribute to Pinnacle
such shares of ▇▇▇▇▇▇ Class B Common Stock and ▇▇▇▇▇▇ Class C Common
Stock, whereafter Pinnacle will exchange substantially all of such
shares of ▇▇▇▇▇▇ Class B Common Stock and ▇▇▇▇▇▇ Class C Common Stock
with holders of Pinnacle Series A, Series B and Series C Preferred Stock
(collectively, the "Pinnacle Preferred Stock") pursuant to that certain
Preferred Stock Exchange Agreement to be entered into among Pinnacle and
the holders of the Pinnacle Preferred Stock (the "Preferred Stock
Exchange Agreement") (all such issuances and distributions to be
referred to collectively as the "Exchange Distribution" and,
collectively with the Spin-Off Distributions, the "Distributions");
WHEREAS, the Distributions may be effected only if consents are received on
terms satisfactory to ▇▇▇▇▇ in its sole discretion from the holders of record of
a majority in principal amount (the "Requisite Consents") of the outstanding
11 3/8% Senior Subordinated Notes due 2003 (the "Notes") of ▇▇▇▇▇ to certain
amendments (the "Proposed Amendments") to the indenture (the "Indenture")
between ▇▇▇▇▇ and The Bank of New York, as trustee (the "Trustee"), governing
the Notes and such amendments permitting the Distributions are effected by ▇▇▇▇▇
and the Trustee executing and delivering a supplemental indenture setting forth
such amendments to the Indenture (the "First Supplemental Indenture");
WHEREAS, the parties intend that the Distributions be exempt from
registration pursuant to Section 5 of the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, the parties intend that the Distributions qualify under Section
355 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DISTRIBUTIONS
1.1 THE SPIN-OFF DISTRIBUTIONS. On or prior to the date on which the
Spin-Off Distributions are effected (the "Spin-Off Distribution Date"), ▇▇▇▇▇▇
shall cancel the 100 shares of ▇▇▇▇▇▇ Common Stock issued to ▇▇▇▇▇ in connection
with the initial capitalization of ▇▇▇▇▇▇ and ▇▇▇▇▇ shall deliver to Pinnacle a
certificate for the remaining 749,693 shares of ▇▇▇▇▇▇ Common Stock held by
▇▇▇▇▇. Upon direction from Pinnacle as to the number of shares of common stock,
par value $0.01 per share, of Pinnacle (the "Pinnacle Common Stock"),
outstanding on the record date set by Pinnacle for the Subsequent Distribution
(the "Spin-Off Record Date"), ▇▇▇▇▇▇ shall deliver to Pinnacle, for the benefit
of holders of record of Pinnacle Common Stock on the Spin-Off Record Date, a
stock certificate representing, in the aggregate (and rounded down to
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nearest whole share), a number of shares representing one (1) share of ▇▇▇▇▇▇
Common Stock for each share of Pinnacle Common Stock outstanding on the
Record Date. Pinnacle shall distribute as promptly as practicable following
the Spin-Off Distribution Date to holders of record of Pinnacle Common Stock
on the Spin-Off Record Date one (1) share of ▇▇▇▇▇▇ Common Stock for each
share of Pinnacle Common Stock and cash in lieu of fractional shares, if any,
in the manner provided in Section 1.5 hereof. ▇▇▇▇▇▇ agrees to provide to
Pinnacle sufficient certificates in such denominations as Pinnacle may
request in order to effect the Subsequent Distribution.
1.2 ESTABLISHMENT OF AMOUNT OF ▇▇▇▇▇▇'▇ INTERCOMPANY INDEBTEDNESS. The
amount of ▇▇▇▇▇▇'▇ intercompany indebtedness to ▇▇▇▇▇ at the end of business on
the day preceding the Spin-Off Distribution Date shall be deemed to be the
amount of ▇▇▇▇▇▇'▇ intercompany indebtedness to ▇▇▇▇▇ immediately prior to the
Spin-Off.
1.3 ▇▇▇▇▇▇ COMMON STOCK. All of the shares of ▇▇▇▇▇▇ Common Stock
distributed in the Spin-Off Distributions shall be fully paid, nonassessable and
free of preemptive rights. The shares of ▇▇▇▇▇▇ Common Stock received by
holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off shall be
subject to the transfer restrictions set forth herein and each certificate
representing shares of ▇▇▇▇▇▇ Common Stock distributed in the Subsequent
Spin-Off Distribution shall bear the legends set forth herein. Notwithstanding
any provision hereof, nothing shall prevent the imposition of additional
restrictions on the transfer of ▇▇▇▇▇▇ Common Stock, or the modification of the
restrictions on such transfer set forth herein, pursuant to the terms of the
Stockholders Agreement, dated October 27, 1998, by and among ▇▇▇▇▇▇ and the
stockholders named therein (the "Stockholders Agreement").
(a) TRANSFER RESTRICTIONS. No shares of ▇▇▇▇▇▇ Common Stock received
by holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off or any
interest therein shall be transferred by any direct or indirect sale,
assignment, mortgage, transfer, pledge, gift, hypothecation or other disposition
or transfer (each, a "Transfer"), except pursuant to any Transfer (i) to ▇▇▇▇▇▇;
(ii) to existing ▇▇▇▇▇▇ stockholders; (iii) by gift, bequest or operation of the
laws of descent, provided that the shares of ▇▇▇▇▇▇ Common Stock in the hands of
the transferee remain subject to the same restrictions on Transfer as such
shares were subject when held by the transferor; (iv) to an entity unaffiliated
with ▇▇▇▇▇▇ pursuant to a merger, consolidation, stock-for-stock exchange or
similar transaction involving ▇▇▇▇▇▇; (v) by a partnership to its partners,
provided that the shares of ▇▇▇▇▇▇ Common Stock in the hands of the transferee
remains subject to the same restrictions on transfer as such shares were subject
when held by the transferor; or (vi) that would be exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act if the transferor were the issuer
of the shares of ▇▇▇▇▇▇ Common Stock, provided that the transferee is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
and the shares of ▇▇▇▇▇▇ Common Stock in the hands of such transferee remain
subject to the same restrictions on transfer as such shares were subject when
held by the transferor, or a transfer pursuant to an effective registration
under the Securities Act simultaneously with a registration of the ▇▇▇▇▇▇ Common
Stock under Section 12 of the Securities Exchange Act of 1934, as amended.
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(b) LEGENDS. Each certificate representing shares of ▇▇▇▇▇▇ Common
Stock distributed in the Subsequent Spin-Off Distribution shall bear the legends
set forth below.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFERS SET FORTH IN A DISTRIBUTION
AGREEMENT, DATED AS OF OCTOBER 27, 1998, BY AND AMONG PINNACLE
AUTOMATION, INC., ▇▇▇▇▇ SYSTEMS, INC. AND ▇▇▇▇▇▇ SOFTWARE
INTERNATIONAL, INC. (THE "COMPANY") AND A STOCKHOLDERS AGREEMENT,
DATED AS OF OCTOBER 27, 1998 (AS AMENDED, MODIFIED OR SUPPLEMENTED),
BY AND AMONG THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, COPIES OF
WHICH AGREEMENTS ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE
TERMS OF THE DISTRIBUTION AGREEMENT AND THE STOCKHOLDERS AGREEMENT."
1.4 DISTRIBUTION OF ▇▇▇▇▇▇ CLASS B COMMON STOCK AND ▇▇▇▇▇▇ CLASS C
COMMON STOCK. On or prior to the date on which the Exchange Distribution is
effected (the "Exchange Distribution Date" and, collectively with the Spin-Off
Distribution Date, the "Distribution Dates"), ▇▇▇▇▇ shall deliver to Pinnacle
certificates held by ▇▇▇▇▇ for (i) 215,523 shares of ▇▇▇▇▇▇ Class B Common Stock
and (ii) 128,022 shares of ▇▇▇▇▇▇ Class C Common Stock in order for Pinnacle to
effect the exchange of shares of ▇▇▇▇▇▇ Class B Common Stock and ▇▇▇▇▇▇ Class C
Common Stock for shares of Pinnacle Preferred Stock pursuant to the Preferred
Stock Exchange Agreement.
1.5 FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of ▇▇▇▇▇▇ Common Stock shall be issued as part of the Subsequent
Distribution and in lieu of receiving fractional shares, each holder of Pinnacle
Common Stock who would otherwise be entitled to receive a fractional share of
▇▇▇▇▇▇ Common Stock pursuant to the Subsequent Distribution will receive cash
for such fractional shares.
1.6 PINNACLE AND ▇▇▇▇▇ BOARD ACTION.
(a) This Agreement and other related agreements have been approved by
the Board of Directors of Pinnacle and ▇▇▇▇▇, subject to the receipt by ▇▇▇▇▇ of
the Requisite Consents, the execution and delivery of the First Supplemental
Indenture by ▇▇▇▇▇ and the Trustee and the declaration of the Distributions by
the Board of Directors of Pinnacle and ▇▇▇▇▇, and the consummation of the
transactions provided for herein shall only be effected after the Requisite
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Consents have been received by ▇▇▇▇▇, the First Supplemental Indenture has been
executed and delivered by ▇▇▇▇▇ and the Trustee and the Distributions have been
declared by the Board of Directors of Pinnacle and ▇▇▇▇▇.
(b) The Board of Directors of Pinnacle and ▇▇▇▇▇, in their sole
discretion, shall establish the Spin-Off Record Date and the Distribution Dates
and all appropriate procedures in connection with the Distributions.
1.7 FURTHER ASSURANCES. Each of the parties hereto promptly shall
execute such documents and other instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
to consummate the transactions contemplated hereby.
1.8 TAX MATTERS. The parties agree to treat the Distributions as
tax-free distributions pursuant to Section 355 of the Code and any state or
local counterparts. That certain Tax Sharing Agreement, dated the date
hereof, among Pinnacle, ▇▇▇▇▇ and ▇▇▇▇▇▇ (the "Tax Sharing Agreement"), sets
forth the rights and obligations of the parties with respect to taxes, and
contains representations and covenants of the parties to satisfy the
requirements of Section 355 of the Code. The indemnification obligations of
the parties with respect to taxes shall be governed exclusively by the Tax
Sharing Agreement.
1.9 CERTAIN ▇▇▇▇▇▇ SERVICES.
(a) ADS AGREEMENTS. Following consummation of the Spin-Off, for the
period during which White remains obligated to Automated Distribution Systems,
L.P. ("ADS") pursuant to (i) that certain System Procurement and Integration
Agreement, dated July 28, 1995, among Pinnacle, White and ADS as amended by
Amendment No. 1, dated August 22, 1995, and Amendment ▇▇. ▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇,
▇▇▇▇, (▇▇) that certain System Maintenance Agreement, dated October 24, 1997,
among Pinnacle, White and ADS and (iii) that certain Preferred Registration
Technology Escrow Agreement, dated as of October 24, 1997, among Data Securities
International, Inc., White and ADS, and including any and all renewal periods
under any of such Agreements (collectively, the "ADS Agreements"), and such that
White may timely and fully fulfill its obligations under the ADS Agreements,
▇▇▇▇▇▇ agrees that it shall provide hardware and software services as requested
by ADS or White on the following payment terms: (i) through June 30, 1999,
▇▇▇▇▇▇ shall continue to provide hardware and software support services to ADS
without compensation other than the compensation that ▇▇▇▇▇▇ has already
received to date from ADS; (ii) with respect to hardware support, after June
30, 1999, Pinnacle or ▇▇▇▇▇ shall reimburse, or shall cause White to reimburse,
▇▇▇▇▇▇ for all reasonably incurred costs billed to ▇▇▇▇▇▇ by third-party vendors
in connection with hardware support services provided by ▇▇▇▇▇▇ in connection
with the ADS Agreements upon presentment by ▇▇▇▇▇▇ of sufficiently detailed
invoices for such third-party vendor services rendered; and (iii) with respect
to software support, for the period beginning July 1, 1999 and ending June
30, 2001, Pinnacle or ▇▇▇▇▇ shall pay, or shall cause White to pay, $50,000 to
▇▇▇▇▇▇ per year, provided ▇▇▇▇▇▇▇-like services are rendered by ▇▇▇▇▇▇ in
connection with the ADS Agreements, and, after June 30, 2001, in the event that
Pinnacle, ▇▇▇▇▇ or White shall request that ▇▇▇▇▇▇ render software support
services in connection with the ADS Agreements, Pinnacle or ▇▇▇▇▇ shall pay, or
shall cause White to pay, upon the rendering of ▇▇▇▇▇▇▇-like services by ▇▇▇▇▇▇
and presentment
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by ▇▇▇▇▇▇ of sufficiently detailed invoices for such services, an amount
equal to ▇▇▇▇▇▇'▇ then current fully absorbed rate per hour for applicable
engineers multiplied by 200%.
(b) NATIONAL BEEF. Following consummation of the Spin-Off, ▇▇▇▇▇▇ agrees
that it will continue to provide software support to National Beef Packing
Company, L.P. ("NBP") in connection with the Systems and Maintenance Support
Agreement, dated November 1, 1997, between ▇▇▇▇▇ Systems, Inc. and NBP, as
amended to date (the "NBP Agreement"), such that ▇▇▇▇▇ may timely and fully
fulfill its obligations under the NBP Agreement through October 31, 2001. In
full and final settlement of any claim by ▇▇▇▇▇▇ for payment for services
rendered during the period beginning on the date hereof and ending
October 31, 2000, ▇▇▇▇▇ shall credit the amount of $50,000 against the balance
of intercompany indebtedness owed by ▇▇▇▇▇▇ to ▇▇▇▇▇ at the Effective Time of
the Spin-Off. In the event that ▇▇▇▇▇ requests that ▇▇▇▇▇▇ provide software
support services to NBP in connection with the NBP Agreement during the one-year
period beginning November 1, 2000 and ending October 31, 2001, ▇▇▇▇▇ shall pay
▇▇▇▇▇▇, on a time and material basis, at the rate of $150 per hour, not to
exceed $75,000 in the aggregate for such one-year period, upon the rendering of
▇▇▇▇▇▇▇-like services by ▇▇▇▇▇▇ and presentment by ▇▇▇▇▇▇ of sufficiently
detailed invoices for such services indicating the number of engineer hours
rendered.
1.10 ▇▇▇▇▇▇▇ DISPUTE.
(a) Without modifying ▇▇▇▇▇▇'▇ indemnification obligations pursuant to
Section 3.2 hereof, if the ▇▇▇▇▇▇▇ Dispute (as defined in Section 7.08(b) of the
Amended and Restated Investment Agreement, dated October 2, 1998, by and among
▇▇▇▇▇▇ and the other parties named therein and amending and restating the
Investment Agreement, dated as of July 24, 1998 (the "Amended and Restated
Investment Agreement")) results in a payment or payments (each, a "▇▇▇▇▇▇▇
Payment") by ▇▇▇▇▇▇ in excess of $3,400,000, ▇▇▇▇▇ hereby commits that it shall,
promptly upon receipt of each notice from ▇▇▇▇▇▇ that a ▇▇▇▇▇▇▇ Payment has been
made, pay to ▇▇▇▇▇▇ the amount set forth in such notice, which amount shall
equal (i) the aggregate amount of all ▇▇▇▇▇▇▇ Payments paid by ▇▇▇▇▇▇ as at the
date of such notice minus (ii) $3,400,000 minus (iii) the aggregate amount of
all payments previously made by ▇▇▇▇▇ pursuant to this Section 1.10; PROVIDED
that ▇▇▇▇▇ shall not be obligated to make payments to ▇▇▇▇▇▇ in the aggregate in
excess of $4,000,000.
(b) ▇▇▇▇▇'▇ obligation to make such payments shall cease, and ▇▇▇▇▇▇
shall be obligated to reimburse ▇▇▇▇▇ for such payments, plus accrued interest
from the date of each such payment at a rate equal to the most recent prime rate
announced by The Chase Manhattan Bank plus 1.00 percent per annum compounded
semi-annually, upon the earlier of (i) the Repurchase Date (as defined in the
Certificate of Incorporation of ▇▇▇▇▇▇ (the "Certificate of Incorporation") that
is an exhibit to the Amended and Restated Investment Agreement) or (ii) the
closing date of any Qualified IPO (as defined in the Certificate of
Incorporation).
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ARTICLE II
CONDITIONS PRECEDENT TO THE DISTRIBUTIONS
2.1 The obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver at
or prior to each of the Distribution Dates of all of the conditions set forth
below in this Section 2.1.
(a) REQUISITE CONSENTS. The Requisite Consents shall have been
received and the First Supplemental Indenture shall have been executed by ▇▇▇▇▇
and the Trustee.
(b) THIRD-PARTY CONSENTS. All necessary third-party consents to the
Distributions shall have been obtained.
(c) CORPORATE AUTHORITY. The Boards of Directors of each of Pinnacle
and ▇▇▇▇▇ shall have formally approved the Exchange Distribution and the
Spin-Off Distributions, finding in connection with such approval that their
respective surpluses for purposes of Section 170 of the Delaware General
Corporation Law (the "DGCL") at the respective times of the Exchange
Distribution and the Spin-Off Distributions will be sufficient to permit the
Exchange Distribution and the Spin-Off Distributions under Section 170 of the
DGCL.
(d) NO LEGAL RESTRAINT. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Exchange Distribution or the Spin-Off Distributions shall be pending.
(e) THIRD-PARTY INVESTMENT IN ▇▇▇▇▇▇. The Amended and Restated
Investment Agreement shall have been executed and delivered by the parties
thereto.
(f) AMENDED ▇▇▇▇▇ CREDIT AGREEMENT. The existing credit agreement
among ▇▇▇▇▇ and the lending institutions party thereto shall have been amended
to permit the Distributions.
(g) TAX SHARING AGREEMENT. The Tax Sharing Agreement shall have been
executed and delivered by the parties thereto.
(h) PINNACLE PREFERRED STOCK EXCHANGE AGREEMENT. The Preferred Stock
Exchange Agreement shall have been executed and delivered by the parties
thereto.
(i) PERFORMANCE OF THE PARTIES. Each of the provisions of this
Agreement required to be performed or complied with on or prior to the Exchange
Distribution Date or on or prior to the Spin-Off Distribution Date shall have
been timely performed or complied with by the party owing performance or
compliance.
2.2 ADEQUATE FINANCING FOR SPIN-OFF OFFER. Pinnacle and ▇▇▇▇▇ shall
not consummate the transactions contemplated by this Agreement unless ▇▇▇▇▇,
immediately prior to the Spin-Off, shall have cash on hand and cash available
under its Revolving Credit Facility (as defined in ▇▇▇▇▇'▇ Consent Solicitation
Statement, as amended and supplemented, delivered to holders of the Notes
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soliciting consents to the Proposed Amendments (the "Consent Solicitation
Statement")) that, taken together with cash to be received by ▇▇▇▇▇ from
▇▇▇▇▇▇ in connection with the Spin-Off, would be sufficient to fund the
Spin-Off Offer (as defined in the Consent Solicitation Statement).
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY PINNACLE AND ▇▇▇▇▇. Pinnacle and ▇▇▇▇▇ shall
indemnify, defend and hold harmless, jointly and severally, ▇▇▇▇▇▇ and each of
its subsidiaries and their respective successors-in-interest and each of their
respective affiliates, stockholders, directors, officers, employees, attorneys,
agents, representatives and beneficiaries (the "▇▇▇▇▇▇ Indemnified Parties")
against any and all losses, claims, damages, liabilities, judgments, costs and
expenses, including legal fees and expenses ("Losses"), joint or several,
suffered or incurred by any such party (other than any Loss relating to tax
matters, for which any indemnification shall be as set forth in the Tax Sharing
Agreement) that arise out of (i) any and all lawsuits, actions, proceedings,
inquiries or investigations commenced against Pinnacle, ▇▇▇▇▇, ▇▇▇▇▇▇ or any of
their respective subsidiaries or other ▇▇▇▇▇▇ Indemnified Parties in connection
with the Spin-Off or the Distributions contemplated by this Agreement or the
Recapitalization (as defined herein) (collectively, "Distribution Actions"),
(ii) the assets, business, operations, debts or liabilities of any activity of
Pinnacle and ▇▇▇▇▇ other than the ▇▇▇▇▇▇ Business or any and all lawsuits,
actions, proceedings, inquiries or investigations related to any activity of
Pinnacle or ▇▇▇▇▇ other than the ▇▇▇▇▇▇ Business, whether incurred prior to,
concurrently with or after the Spin-Off Distribution Date, (iii) any and all
lawsuits, actions or proceedings that arise out of any untrue statement or
alleged untrue statement of a material fact contained in the Consent
Solicitation Statement, the Information Statement regarding ▇▇▇▇▇▇ delivered by
Pinnacle to the holders of Pinnacle Common Stock in connection with the
Subsequent Spin-Off Distribution, the Information Statement, as amended or
supplemented, regarding the Exchange Distribution delivered by Pinnacle to the
holders of Series A, Series B and Series C Pinnacle Preferred Stock, any
document incorporated by reference therein or any amendment or supplement to any
of the foregoing or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (iv) any and all other
lawsuits, actions or proceedings that arise out of the Distribution Actions and
(v) any and all lawsuits, actions or proceedings to enforce this indemnity. For
purposes of this Agreement, the term "Recapitalization" shall have the meaning
ascribed to it in the Preferred Stock Exchange Agreement.
3.2 INDEMNIFICATION BY ▇▇▇▇▇▇. ▇▇▇▇▇▇ shall indemnify, defend and
hold harmless Pinnacle and ▇▇▇▇▇ and each of their subsidiaries and their
respective successors-in-interest, and each of their respective affiliates,
stockholders, directors, officers, employees, attorneys, agents,
representatives and beneficiaries (the "Pinnacle Indemnified Parties")
against any Losses, joint or several, suffered or incurred by any such party
(other than any Loss relating to tax matters, for which any indemnification
shall be as set forth in the Tax Sharing Agreement) that arise out of (i) the
assets, business, operations, debts or liabilities of the ▇▇▇▇▇▇ Business or
any and all lawsuits, actions, proceedings, inquiries or investigations
related to the ▇▇▇▇▇▇ Business, whether incurred prior to, concurrently with
or after the Spin-Off Distribution Date, including, but not limited to, the
dispute
8
involving ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and those certain guarantees by ▇▇▇▇▇ (and
Pinnacle, as noted) of the obligations of each of ▇▇▇▇▇▇ and its wholly owned
subsidiary, ▇▇▇▇▇▇▇ Software Development Corp. ("▇▇▇▇▇▇▇"), under leases of
real property occupied by ▇▇▇▇▇▇ and/or ▇▇▇▇▇▇▇ at the date of this Agreement
at: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (guaranteed by ▇▇▇▇▇▇
and Pinnacle); ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇; and ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇, ▇▇ ▇▇▇▇▇, and under Master Lease No. 155056 of
computer equipment from Computer Sales International, Inc., dated as of July
13, 1998 and (ii) any and all lawsuits, actions or proceedings to enforce
this indemnity.
3.3 NOTIFICATION OF CLAIMS. For the purpose of this Article III, the
term "Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party pursuant to this Article III, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Article III. Whenever any claim shall arise for
indemnification under this Article III, including any claim related to a
Distribution Action, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of such claim and, when known, the facts
constituting the basis for such claim (in reasonable detail). Failure by the
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder except to the extent that such
failure materially prejudices the Indemnifying Party.
3.4 INDEMNIFICATION PROCEDURES.
(a) For all claims other than Distribution Actions:
(i) After the notice required by Section 3.3 is received by the
Indemnifying Party, if the Indemnifying Party undertakes to defend any such
claim, then the Indemnifying Party shall be entitled, if it so elects, to take
control of the defense and investigation with respect to such claim and to
employ and engage attorneys of its own choice to handle and defend the same, at
the Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnified Party of such election, which notice acknowledges the Indemnifying
Party's obligation to provide indemnification hereunder. The Indemnifying Party
shall not settle any third-party claim that is the subject of indemnification
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided, however, that the Indemnifying Party may settle
a claim without the Indemnified Party's consent if such settlement (x) makes no
admission or acknowledgment of liability or culpability with respect to the
Indemnified Party, (y) includes a complete release of the Indemnified Party and
(z) does not require the Indemnified Party to make any payment or forego or take
any action. The Indemnified Party may, at its own cost, participate in any
investigation, trial and defense of such lawsuit, action or proceeding
controlled by the Indemnifying Party and any appeal arising therefrom. If there
are one or more legal defenses available to the Indemnified Party that conflict
with those available to the Indemnifying Party, the Indemnified Party shall have
the right, at the expense of the Indemnifying Party, to assume the defense of
the lawsuit, action or proceeding; PROVIDED, HOWEVER, that the Indemnified Party
may not settle such lawsuit, action or proceeding without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
(ii) If, after receipt of a claim notice pursuant to Section 3.3,
the Indemnifying Party does not undertake to defend any such claim, the
Indemnified Party may, at the Indemnifying
9
Party's expense, but shall have no obligation to, contest any lawsuit, action
or proceeding with respect to such claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party
(including, without limitation, the settlement thereof without the consent of
the Indemnifying Party).
(iii) At any time after the commencement of defense of any
lawsuit, action or proceeding, the Indemnifying Party may request the
Indemnified Party to agree in writing to the abandonment of such contest or to
the payment or compromise by the Indemnifying Party of such claim, whereupon
such action shall be taken unless the Indemnified Party determines that the
contest should be continued and so notifies the Indemnifying Party in writing
within 15 days of such request from the Indemnifying Party. If the Indemnified
Party determines that the contest should be continued, the Indemnifying Party
shall be liable hereunder only to the extent of the lesser of (y) the amount
which the other party(ies) to the contested claim had agreed to accept in
payment or compromise as of the time the Indemnifying Party made its request
therefor to the Indemnified Party or (z) such amount for which the Indemnifying
Party may be liable with respect to such claim by reason of the provisions
hereof.
(b) Pinnacle and ▇▇▇▇▇ shall have responsibility to defend against any
Distribution Actions, PROVIDED, HOWEVER, that (i) if Pinnacle and ▇▇▇▇▇ shall
elect not to assume the defense of such Actions or (ii) if ▇▇▇▇▇▇ reasonably
determines that there may be a conflict between the positions of Pinnacle and
▇▇▇▇▇, on the one hand, and of ▇▇▇▇▇▇, on the other hand, in defending such
claim or action, then separate counsel shall be entitled to participate in and
conduct the defense, and Pinnacle and ▇▇▇▇▇ shall be liable for any legal or
other expenses reasonably incurred by ▇▇▇▇▇▇ in connection with the defense.
Pinnacle and ▇▇▇▇▇ shall not be liable for any settlement of any action, suit,
claim or proceeding effected without its written consent; PROVIDED, HOWEVER,
that Pinnacle shall not unreasonably withhold, delay or condition its consent.
Pinnacle and ▇▇▇▇▇ further agree that they will not, without ▇▇▇▇▇▇'▇ prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof in any pending or threatened action, suit, claim or
proceeding in respect of which indemnification may be sought hereunder (whether
or not ▇▇▇▇▇▇ is an actual or potential party to such action, suit, claim or
proceeding) unless such settlement or compromise includes an unconditional
release of ▇▇▇▇▇▇ from all liability arising out of such action, suit, claim or
proceeding..
(c) With respect to all claims, including any Distribution Actions, the
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and defense of
any lawsuit, action or proceeding with respect to such claim and any appeal
arising therefrom (including the filing in the Indemnified Party's name of
appropriate cross claims and counterclaims).
10
3.5 INDEMNIFICATION OF INSURED LOSS.
(a) The amount of any Loss for which indemnification is provided under
this Article III shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies covering such Loss. It is the
express intention of the parties hereto that no transaction contemplated by this
Agreement eliminate or reduce insurance coverage available to any party hereto
with respect to a Loss.
(b) If the Indemnified Party makes any payment under this Article III
in respect of any Loss, the Indemnifying Party shall be subrogated, to the
extent of such payment, to the rights of the Indemnified Party against any
insurer or third party with respect to such Loss. The Indemnified Party shall
execute any required documents or instruments, serve as a named plaintiff or
take any other similar steps necessary to effectuate such subrogation.
3.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify and hold
harmless a party hereto shall survive with respect to any claim until any
applicable statute of limitations with respect to such claim expires; PROVIDED
that prior to the expiration of the applicable statute of limitations period the
Indemnified Party shall have delivered a claim notice in accordance with
Section 3.3 hereof to the Indemnifying Person.
ARTICLE IV
ARBITRATION
4.1 IN GENERAL. Any controversy, dispute or disagreement between the
parties hereto arising out of or relating to this Agreement, which controversy,
dispute or disagreement is not settled in writing within 30 days after the date
on which a party subject to this Agreement gives written notice to the other
party(ies) that a controversy, dispute or disagreement exists, shall be
submitted to binding arbitration pursuant to this Article IV, which shall
constitute the exclusive remedy for the settlement of any controversy, dispute
or disagreement between the parties concerning this Agreement, including whether
such controversy, dispute or disagreement is subject to arbitration pursuant to
this Article IV.
4.2 SELECTION OF ARBITRATORS. Within 45 days after the date on which a
party hereto gives written notice to the other party(ies) that a controversy,
dispute or disagreement exists arising out of or relating to this Agreement, the
parties agree to each select one arbitrator to hear and decide such matters.
The two arbitrators so chosen shall then select a third arbitrator. Each of the
arbitrators chosen shall be impartial and independent of all parties to this
Agreement and shall be a retired judge or lawyer experienced in corporate law
matters. If either of the parties fails to select an arbitrator within 20 days
after the end of such 45-day period, or if the arbitrators chosen fail to select
a third arbitrator within such 20 days, then any party may in writing request
the judge of the United States District Court for the Southern District of New
York senior in term of service to appoint the arbitrator or arbitrators.
4.3 CONDUCT OF PROCEEDINGS. Each arbitration hearing shall be held at
a place in New York City, New York acceptable to a majority of the arbitrators.
The arbitration shall be conducted
11
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the
terms of this Section. The decision of a majority of the arbitrators shall
be reduced to writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be entered and
execution had in any court of competent jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. The charges and expenses of the arbitrators and all costs of
arbitration shall be paid by the non-prevailing party as determined by a
majority of the arbitrators. The arbitration shall commence within 10 days
after the arbitrators are selected. In fulfilling their duties with respect
to determining the amount of any loss or claim, the arbitrators may consider
such matters as, in the opinion of the arbitrators, are necessary or helpful
to make a proper determination. The arbitrators may consult with and engage
disinterested third parties to advise the arbitrators. If any of the
arbitrators selected hereunder should die, resign or be unable to perform his
or her duties hereunder, the remaining arbitrators or such senior judge (or
such judge's successor) shall select a replacement arbitrator. The procedure
set forth herein for selecting the arbitrators shall be followed from time to
time as necessary.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement, together with the Preferred
Stock Exchange Agreement, the Tax Sharing Agreement and the Stockholders
Agreement, constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
5.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
5.3 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
5.4 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Pinnacle or ▇▇▇▇▇:
c/o Pinnacle Automation, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, President and Chief Executive
Officer
12
if to ▇▇▇▇▇▇:
▇▇▇▇▇▇ Software International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and Chief Executive
Officer
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed
effective on the first business day at the place of which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
5.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except as
provided in Article III, Article IV, Section 5.7 and Section 5.8 (which are
intended to be for the benefit of the persons provided for therein, and may be
enforced by such persons).
5.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
5.7 PERSONAL LIABILITY. This Agreement shall not create or be deemed
to create or permit any personal liability or obligation on the part of any
direct or indirect stockholder of any party hereto or any officer, director,
employee, agent, representative or investor of any party hereto.
5.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
5.9 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
5.10 LEGAL FEES; COSTS. Subject to Section 4.3 hereof, if any party
hereto institutes any action or proceeding, whether before a court or
arbitrator, to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the non-prevailing party reasonable
attorneys' fees and costs and any other costs incurred in such action or
proceeding, whether or not such action or proceeding is prosecuted to judgment.
13
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
PINNACLE AUTOMATION, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇ SYSTEMS, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ SOFTWARE INTERNATIONAL, INC.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vice President - Finance and Treasurer
14
